June 12th, 2017

Pariahs, predators or players? The tobacco industry and the end of smoking

What would he do?

Given the confusion, anxiety and indignation that surrounds the role of the tobacco industry in tobacco harm reduction, I thought it would be interesting to imagine how a tobacco company chief executive might be thinking about vapour,  heat-not-burn or other low risk products. Here’s my best shot – perhaps erring on the side of optimism. Feel free to imagine differently in the comments, especially if you are actually in the industry (you are welcome to post anonymously) or are unconvinced. 

  1. Technology trend – fundamental. You recognise the underlying technology change in the consumer nicotine marketplace is fundamental not just a new niche. And, unnoticed by many, it relates to energy – the power and energy density of modern batteries now allow viable competitive products to challenge products where the underlying energy source is combustion of organic material.  And you know combustion is the problem. It is now possible to create a nicotine-bearing aerosol without combustion in a reasonable consumer-friendly form – a tipping point in battery technology has enabled a tipping point in the alternatives to cigarettes. Given the underlying development in this area is driven by smartphones, this effect will only get stronger. Once the basic energy problem is cracked, an innovation war can and will commence: aerosol droplet size and mobility, flavours & diluents, free nicotine availability, other pharmacologically active ingredients, sensory impact, control and feedback, data gathering, usability features, temperature control, new heating technologies, heated flavoured tobacco products, aesthetics and branding …  all potential areas for intense innovation and competition. These products have advanced beyond recognition in the last five years. What will the next five, ten or twenty years bring? A lot of disruption is coming up and you either fear it or embrace it.
  2. Proof of concept – Sweden. You’ve also seen what is happening in Sweden, where smoking prevalence has fallen to seven percent and daily smoking just five percent (May 2017 Eurobarometer). With alternative nicotine delivery the much vaunted endgame is possible. But end of what? And is that a threat or an opportunity?
  3. Consumers – assertive. You see consumers already migrating to these products at a rapid rate by historical standards . For your customers, there isn’t just a rival product in the market, but a rival value proposition – much of what they like about smoking, some other geeky things too, but a fraction (if any) of the death and disease, less smell, mess and stigma, and probably at a lower cost. The customer is king, and the customer is very well served by these new products. The more these products can match or surpass the smoking value proposition (which they will over time), the more rapidly the market will shift. These are consumers (and products) for the internet age, and they know stuff.  A giant eco-system of social media, vape stores, advocates, pundits, reviewers and experts are all owning the message and teaching each other. You recognise you can’t act against their interests or they’ll take their revenge in the market place.  You have wound back some of the positions you took earlier as your consumer insight has advanced.
  4. Competition – a lot more. You see new competition and competitors everywhere. From other tobacco companies, from non-tobacco nicotine companies, from counter-culture vape stores, from the black market in e-cigarette and liquids, from DIY mixers, from high powered e-cigs, from heat-not-burn, maybe a revival of smokeless.  The internet is changing the retail world and consumers’ brand loyalty is to the next cool thing, not to you. The historic order of stable tobacco industry market shares, persistent brand loyalty and customers-for-life is fracturing. Your history of oligopolistic pricing behaviour, in which you put up prices and relied on low elasticity of demand to make even more money, is under stress.  Now the cross-elasticity of demand with vapour products will threaten your ‘pricing power’ in the cigarette market, with tax policies adding to the pressure and plain packaging making price competition more intense.
  5. So what’s your best move? The most important thing is to be a strong competitor in the new product markets… you need to be in this game and aggressive with it. Your interest (and your board’s and shareholders’) is in maximising the medium-term total profit pool of the business – both combustible and non-combustible. If someone stops using your cigarettes and switches to a rival vaping product you lose all the profit stream from that customer. Equally, if a rival’s cigarette customer is considering a switch to vaping, you might persuade them to move to your product and gain market share. Either way, the disruption in the market requires you to have the best products you can offer – to defend market share or to take market share.  There really is no other way. Some have suggested you might make mediocre products “to keep people smoking”… but you know that’s not an option. In a competitive market, you’d lose the smokers and the vapers.
  6. Arms race in R&D. What if your competitor produces the killer product (no pun intended), the equivalent of the iPhone and smartphones that ultimately crushed one-time cellphone market leader Nokia? You need to invest heavily in the labs and in consumer insight, and keep your eyes open for acquisitions – what is moving, but underpriced? You are still in the traditional consumer goods business, but with a fast-moving tech business (with tech financials) embedded within. You need to act like a tech business and up the pace and depth of innovation. Who wants to be the Nokia of Nicotine or the Blackberry of Big Tobacco?  Your existing consumer base could move rapidly if they were confident in the health and welfare benefits and these products felt good to use – and they will. It’s just that they may not move to your products.
  7. Portfolio or silver bullet? Maybe you can storm the market with a single super-innovation:  the ‘silver bullet’ that blows away the competition. But you resist the idea. Led by the customer, you see heterogeneity developing in the market, and this contrasts with the quite homogenous character of the cigarette market, where the diversity is in the branding rather than the product. But with the new products, it seems that different consumers will want different product categories. Their preferences may change over the course of a day or according to their situation. They may shift through products through a long transition from smoking. And of course some countries will have regulation that greatly, if arbitrarily, favours one product category over another.  So you resolve to develop a portfolio and to have “a dog in every fight”.
  8. High margins. You are cautiously optimistic: it is possible the company will make even more money if the margins on the new vape products are high (which they are under current tax conditions).  To sustain premium pricing, you try to make proprietary devices with consumables that only work with your products so you can charge a reasonable premium for them.   For this to work you need strong marketing and high quality products that are easy to use to build a premium brand, otherwise customers will drift away to cheaper products and liquids. If you believe you have a strong product, then you want the tax on it to be low. If you have a weak product and are on the defensive, perhaps you would like the tax authorities to shield you from low-priced superior competitors and you want relatively high tax. There isn’t a single industry view on tax because it depends on relative strengths within the industry.
  9. Low margins. Even if the margins head lower and competition squeezes your ability to raise prices, what’s the alternative? If you don’t have the best products your competitors will still take your customers – you lose all of a smaller profit stream. Your job is still profit maximising, even if that means compensating for the decline in profitability by holding and winning market share with superior products and marketing.
  10. A bigger market fed by recruiting kids? As chief executive, measured primarily on shareholder value (stock price) your concern is mainly for sales over the next five years as that is what will dominate your stock price (though the tech business financials are different and focus on market share and customer growth).  Your focus is not on growing the total market for nicotine, but on winning as much of the evolving nicotine market as you can. It’s about market share and who will gain it and lose it. But, one thought for the long game – maybe recreational nicotine, if no longer deeply conflated with the horrors of cancer, cardiovascular and lung disease, will see a revival in the long run and usage may go up as disease comes down – at least that is what economists would expect.   Some say that in the long run you will need to recruit kids, riffing on the familiar argument about replacing dead smokers… but you don’t see it that way: if it is an adult habit freely chosen and with minimal mortal risks, it’s like any other adult product or even any other product.  Right now your concern is competition for adult smokers.
  11. Becoming a former Merchant of Death. You glimpse the future and see that in the long run, you can get your company out of the ‘Merchant of Death’ business by migrating to products that have near-zero or low risks comparable with other lifestyle choices – if the consumer wants to go there. You like this idea: it will be good for morale to shed some pariah status and it may reduce the company’s legal liability.  Consumers are heading that way, technology is heading that way, there is money to be made, and reputations to be gained.  You remember the ‘Kodak moment’ as digital cameras wiped out film, and then phones wiped out most digital cameras. You declare publicly that this is your direction and you want to “obsolete the cigarette”, not by regulation but by having something better.
  12. Stop selling cigarettes? But the vast bulk of the company’s cash and profit is still from cigarettes. You are hearing calls to stop marketing cigarettes “to show you are serious”. You know you can’t do that: if you tried it the shareholders would object and you’d be fired and replaced with someone who looks after their money. Or the company would be taken over and you’d still be fired. If you tried it and no-one else did, then your customers and their cash-flow would migrate to your rivals. There may not even be any benefit to health, and you’d be out of a job. There isn’t much scope for that sort of heroism, especially unilateral heroism.  So you define the challenge differently: “how do I make the most rapid transition possible, consistent with my duty to protect the interests of shareholders?”  You can’t do the former without the latter …or you are out of a job. And besides, you need to put the money in the cigarette business into R&D to create the products of the future that will keep the company profitable. Normally you just hand it out in dividends, but now you have a reason to retain some earnings and  to invest.
  13. Set a date for phasing out cigarettes? Critics want you to name a date by which you would be out of cigarettes. Hold on. Not that simple. And so you decline to be pinned down to a date. Critics say: ‘told you so’, but you know you are right. The reason is obvious – you don’t control the rate of transition. The rate of transition is a product of many things – the policy and fiscal framework, the communication of risks and benefits of the products, how much marketing you can do, what people say about the products (if your low-risk products are denounced by the U.S. Surgeon General, then you expect the transition from high-risk to low-risk to take longer) and consumer preferences.  If fact you only control a small part of a large eco-system of influences on the rate at which non-combustibles obsolete cigarettes – the 5Ps of marketing (product, price, promotion, position and people) and you don’t even control most of that, given it is subject to regulation.
  14. Same old bad practices in developing countries? You are accused of making this a first world thing and carrying on dirty business as usual out of sight in poor countries.  You know that it will be difficult to ramp up production and ramp down costs at such a rate that you can promote transition in every market in the world simultaneously. You go first to where the margins are best, the regulation most favourable and the consumers most aware.  You need to carry on fighting for market share in the traditional cigarette business, that’s your job, but you are more concerned now about reputational risk and the global visibility of your marketing practices via social media to your potential customers, so you resolve to get more disciplined even if it costs. Actually, you have another and bigger worry about developing countries: the World Health Organisation and its Bloomberg-funded outriders seem determined that you should only sell cigarettes in poorer countries.  They are busy encouraging bans on low-risk products.  You wonder: why would they do that?  Is this some sort of modern imperialism? Why make it lucrative to sell cigarettes and to run a black market in vapour products?  You lament, but there is little you can do – they won’t talk to you.
  15. Regulation.  You turn your attention to the thing that shapes the market as a whole: regulation. What sort of regulation would you want? Hmmm… not straightforward! So many questions: do you want to accelerate the transition because you are in a strong position relative to other companies, or slow it down because you are weak? Are you concerned only about your company’s immediate interests, or are you looking at the evolution of the market as a whole for which you could build a consensus? Are there rivals that would become more threatening or attractive to acquire if regulation changed? As far as that transition is concerned, where could you have common ground with public health, or part of it, and where would your interests diverge? Is perverse public health regulation stopping you moving at the pace you would like? Are you backing things that protect you from competition, but massively annoy your customers? If you pushed for tougher regulation of cigarettes (or stood aside while it was imposed), would that force complete quitting, switching to vaping or diversion to the tobacco black market? Are you on the side of your hapless customers by protecting them from tobacco policies or on their side by helping them to switch?
  16. Go for it. So you determine that you have or will have pretty good alternative products and anyway, fortune favours the brave… there are reputations to be gained here. What sort of regulation might you support to accelerate, and profit from, this transition?
    • Tax differentials that encourage switching? You want the tax system to support the strategy you have. Some jurisdictions are already killing off the fiscal incentives to switch, so they are slowing the rate of transition and making it harder for you to obsolete the cigarette. You might want some tax to add burdens to smaller competitors and to reduce the advantage that the vaping category has over cigarettes so that you aren’t losing too much share to non-tobacco nicotine companies.  You don’t really favour taxation that is literally proportionate to risk, because you think greedy tax authorities will take what they can and pay lip-service to risk, but you want differentials that go some way to reflecting risk.
    • High technical regulatory barriers to entry? At first sight, it looks like exhausting paperwork, testing and technical barriers to would serve you well here.  You have a fat cash flow from cigarette sales with which to cross-subsidise vaping operations. Burdensome regulation will slow down or crush the smaller competitors and make sure the pace of innovation is slowed down to something you can keep ahead of.  And happily, no need to try too hard with this one – you already have most of the public health advocates pushing for a highly regulated market in which only you will thrive. The limit to this however, is the threat of the internet trade overwhelming the regulated market and leaving your more expensive products marooned on an island of high costs and slow innovation. So you rethink, and come more into alignment with the smaller companies – reasoning that you can be a big player in a more diverse market (like AB Inbev and SAB Miller are in the beer market but coexist in competition with craft brewers). So what matters is that the market is legitimate and orderly and not drawn into black market responses. You decide to focus on regulation that is just enough to create material benefits or risk mitigation for consumers. You reject the predatory option of using regulation to wipe out smaller competitors.
    • Marketing freedoms? Yes, please. You want as much freedom as you can get to advertise the vapour products, but subject to limits on content that tends to discredit the industry as a whole.  If you can’t advertise the new products, then how can you build brands and get the consumers into the new low-risk products? Again, relative strengths may play a role. If you have a vaping product, you may be inclined to see heat-not-burn tobacco advertising banned.  On the other hand, beware what you wish for – who knows what the company will be selling in even five years from now. You favour broad freedoms – the right to promote better, safer products would hasten the transition.  Once again, you lament that well-meaning efforts to restrict marketing by public health are slowing down the transition, and you shrug again – more years of earning immoral but lucrative profit from cigarettes lie ahead. C’est la vie.
    • Risk claims?  A key driver of switching is the belief that the new products are much safer than smoking, and you share the conviction of PHE and RCP that they are much less risky. But you are acutely aware that most potential users of these products have no idea about how risky they are and most grossly overestimate the risk relative to smoking.  So this risk misperception is blowing your key USP.  Again you are torn… do you favour a very burdensome approach to claim-making (like FDA’s MRTP or a medicine marketing authorisation) because this would give you – and not many others – the ability to make claims?  Do that and the advantage would be attributed to your product, but not to others that are almost the same.  On the other hand, you might benefit from wider awareness of reduced-risk products.  Maybe it matters less what you say about your products and more what others are saying?
    • Use in public places? The thing you most need here is the right of property owners to make the decisions, neither an unfettered right to vape or a legal prohibition of vaping everywhere smoking is banned.  If the market can provide enough places where vapers are welcome, then maybe that will add to the value proposition of switching and make it more attractive to switch.  Banning indoor vaping might drive new vapers back out with the smokers and leave them resentful and prone to relapse, again slowing the pace of transition. Once again, it looks like public health is doing the devil’s work and forcing you to keep making money from cigarettes. If you were a weak company in the vapour market, you might not mind too much about public health inspired vaping bans, as they protect your cigarette market.
    • Age restrictions?  Of course, you say these products are for adults aged 18 or over and the advertising will be pitched at 25 and over. And you do actually mean it. Marketing to kids is the reputational road to hell and just not worth going down, even if you wanted to.  No kiddie flavours, no childish marketing, no vending machines. Nothing like that.  There are plenty of adult smokers to go after for the foreseeable future.  But privately, you think there are still lots of kids smoking despite the age restrictions, shouldn’t someone (definitely not you) encourage (or not discourage) these kids to vape instead if they would otherwise be smoking? You conclude that the age restrictions are part of a ‘license to operate’ and you should stay out of the heated debate about how vaping may benefit kids who would otherwise smoke. Everyone else is glad you do that too.
  17. A coalition of the willing? You want to change your business and get out of the death racket at the greatest rate possible. Surely that’s a good thing that everyone can agree with. Maybe you can get some momentum up with regulators, legislators and the expert community? Alas, you find your traditional enemies remain your current enemies, lodged in comfortable trenches with their bayonets fixed fighting the war they are most at ease with, whatever you do.  You lament their lack of curiosity and apparent hostility towards the power of capitalist animal spirits to tackle the smoking epidemic from within. But you aren’t going away, and you are making more money and are more highly valued than ever. You can make money by selling cigarettes if they are determined to force that on you.

Note from me, Clive Bates, no longer trying to play a Big Tobacco CEO. It has been interesting to reflect on this.  The role regulation could play in a transition from high-risk to low-risk is, I think, critical, yet the conversation with and within public health on these issues is mostly infantile, and that needs to change.

I think the companies have mixed incentives in this area – there will probably not be one single industry view on regulation.  This is because they are strongly motivated to pursue market share during the upheaval caused by disruptive technologies and are incentivised to favour regulation that reflects their strength or weakness in the market relative to their competitors. Some of their positions on regulation will align with public health interest (generally when they have strong reduced-risk products) and will tend to be misaligned when they are relatively defensive (i.e. with mediocre products or no products in a category).

Some will have temptations to press for regulation that is more burdensome and predatory than is in the consumer interest, but that damages weaker or smaller competitors.  This is an area of possible divergence between public health interests in harm reduction and tobacco industry interests in harm reduction – the latter may press for more demanding regulation in some areas for predatory or defensive reasons. It is also an area where genuines public health advocates need to engage.

What is completely and unambiguously insane to me is that so much of the regulation favoured by regulators and public health activists works to protect the cigarette trade and shield the companies with poor products from competition. David Sweanor famously characterised them as Big Tobacco’s Little Helpers.  But I think it is even worse than that.  The self-defeating anti-harm-reduction hawks actually want regulation that will obstruct the tobacco industry overhauling its business model. They aren’t helping anyone, including Big Tobacco… just defending a legacy business model that they are comfortable with and feel virtuous fighting.

See also: How Big Tobacco sees its future, guest blog by Jon Fell

32 comments to Pariahs, predators or players? The tobacco industry and the end of smoking

  • DEATHS 💀 by cigarette smoking‼️

    Scroll down to “health” and you see numbers of cigarettes smoked today & number deaths caused by smoking this year ‼️
    1,952,352 people and counting…
    …I hope this puts some perspective on what we all are doing…
    #ABillionVapers #ABillionLives

    http://www.worldometers.info/

    • C.B.

      I simply dont believe that cigarettes on their own and without adding on accompanying diseases will kill 1,952,352,000 people. Do they contribute to death? Sure.
      Great article Mr. Bates.
      C.B.

  • Baard Marius Malmin

    Great written Clive. Thanx for sharing. I will post this in my Facebook group “ABillionVapers”

  • This also is pretty darn relevant on this topic (from Bloomberg News):

    Yes, Big Tobacco Says It’s Racing to Create a Smoke-Free Future (audio).

  • Bill Godshall

    If I was a tobacco industry executive, my thinking on US FDA policy for the past two years would be “Since Big Pharma and DHHS financed tobacco controllers stupidly insist upon protecting our cigarettes from market competition by far less harmful smokefree alternatives, and since some desperate vapor trade groups and THR supporters are willing to endorse many/most provisions of the FDA’s Deeming Regulation, our company will continue maximizing future cigarette profits and shareholder value by lobbying to enact the Cole/Bishop bill but to also ensure that all other provisions of FDA’s Deeming Regulation remain intact.”

    As long as clueless tobacco controllers demand regulatory schemes that protect cigarettes, nobody should be surprised that tobacco company executives endorse those same cigarette protecting regulatory schemes.

  • This is great, Clive–thank you. Very thoughtful and intriguing.

    One minor point: in para #10, I think you mean “revival” not “rival” just over halfway down.

    Joe

    Disclosure:
    My employer, PinneyAssociates, provides consulting services on tobacco harm minimization (including nicotine replacement therapy and vapor products) to Niconovum USA, RJ Reynolds Vapor Company, and RAI Services Company, all subsidiaries of Reynolds American Inc. In the past three years, PinneyAssociates has consulted to NJOY on electronic cigarettes. I also own an interest in intellectual property for a novel nicotine medication.

  • Anonymous

    Posted by an employee of Philip Morris International in Australia (who wishes to remain anonymous).

    It’s a fascinating piece and while I’m not the CEO it doesn’t take much to imagine because we’ve been living this as a company for some time. Every single issue in that blog is reflective of our own journey and lived experience. Strange to see someone ‘get it’ like that – it’s almost as if Clive Bates has been along for the ride with us.

    We actually have a unit in our head office dedicated to trying to find ways to transparently verify our adoption of the PMI smoke-free vision, from developing measures that we can publish to prove how we are shifting our investment to RRPs, through to developing economic and public health models that show the size of the benefit from that change.

    Actually, our experience in Australia where the Government views all RRPs as banned is that it’s even harder to show our commitment to fundamental change (given we can’t prove by doing). Last week Crikey attacked us for presenting our smoke free vision to a Senate Committee – presumably tipped off by those few with an interest in watching.

    We know that our role makes the debate harder than it would otherwise be, but the entrenched attitudes of some in Big Tobacco Control in Australia are the worst in the world and would make the same strong case regardless – personally I think we need to play a major role here for that reason alone, especially as we are farthest along the smoke free journey.

    We very much welcome suggestions as to how we can do more and do better locally, while I think we are already the industry leaders globally.

    Thanks for sharing this – it’s good to see that others have great insight into what we are going through. Scarily accurate.

    • Andrew Thompson

      Hate to take this OT (but I’m going to).

      I’ve been fascinated with the iQOS HNB product, and wanted to try it, for some time. I am a vape advocate, but feel this product might be better suited to some smokers. Unfortunately attempts to get one have failed miserably, I am geoblocked from the UK site! A friend of mine runs a vape blog, and I expect he’d also be interested in trying (and potentially reviewing) an iQOS.

      Any chance I could try an iQOS? I’m in Sydney. (Noting your HQ is in Melbourne, I’d be willing to travel to your offices to try it, but haven’t the funds to afford travel & accommodation!)

      Please drop me an email(1) if something can be arranged.

      1) My email address is andrewthommo at gmail dot com.

      • John R Walker

        Andrew
        Curious do you ( or anybody else) know if anybody has tried using any of the devices intended to heat not burn cannabis , to instead heat not burn tobacco.

        Clive insightful post !

        • Andrew Thompson

          I recall hearing someone on the interwebs claim that it was possible to use tobacco in a herb vaporiser, though their comment came to about 5-10 words.

        • Andrew Thompson

          I recall hearing someone on the interwebs claim that it was possible to use tobacco in a herb vaporiser, though their comment came to about 5-10 words.

          Note that the Heet sticks used in the iQOS are (to my understanding) infused with glycerine to provide a more cloudy result, and the device is optimized for tobacco (by an expert in tobacco, using decades of experience in the raw product and truckloads of money for research) – so I imagine it would be a far superior experience.

        • John R Walker

          Andrew Interesting , while it might take a bit of trial and error, can’t see any serious reason why you couldn’t heat up tobacco leaves in a device intended to heat up cannabis leaves, can you?

  • Jonathan Bagley

    In my view, tobacco companies need the help of far more draconian regulation to make money out of vaping. Without tax, a pack of cigarettes sells for around £2, so £10 a week for the average 14 a day smoker.

    My vaping paraphernalia includes an expensive battery, some coils, several cheap batteries, an expensive tank and a stockpile of Poundland disposable atomisers. I’ve bought nothing new for months and equipment costs over the last five years have run at around £1 a week. Prior to the TPD I stockpiled around five years’ supply of 72 mg nicotine solution. I needn’t have bothered.

    I’ve just googled “72 mg nicotine” and found it is still widely available. On one site is the disclaimer, “All nicotine offered on this website, in excess of 20mg/ml is solely for the use in manufacturing products that either comply with or are exempt from the scope of The Tobacco and Related Product Regulations 2016.”

    This keeps the cost of eliquid at around £1 a week, slightly less with no flavouring and slightly more with.

    I am spending at most £3 and probably closer to £2 a week on vaping – a packet of cigarettes a week.

  • Neil McKeganey

    Clive
    Like the others that have commented I think your imagination blog is indeed very interesting. Perhaps you have captured something of the private thinking of tobacco executives in the scenarios you have envisaged. But to me I think your imagination narrative is too inclined towards the shift from combustibles to vapour products. Your assumption seems to be that we are already seeing a fundamental shift in behaviour that is gathering such pace that the orientation and consideration of the tobacco execs must surely be one of how and where to position themselves on that wheel of innovation. But I think that you are too ready to discard combustibles in your belief that they are old technology soon to be overtaken if not already overtaken. Based on current figures for GB only around 16% of current smokers are using ENDS. Now you might say that that 16% is rapidly growing based on the appetite of consumers for ENDS products over combustibles- though my own sense is that there remains a very large proportion of smokers who want the continuation of combustibles. So surely a key part of the thinking of tobacco executives is not simply when to discard combustibles but whether to discard these products and what happens if and when they do discard combustibles- are they ceding their market to other companies that choose to remain in the combustible market? Is it the responsibility of industry to drive behaviour towards the lower harm product or rathe to wait for evidence of greater sustained switching away from combustibles? In essence then I think that your fascinating consideration of the possible perspective of the tobacco exec too readily assumes the tobacco end game as well underway. That is an assumption which to me is undermined by the clear interest on the part of many consumers to continue to wish to smoke rather than switch to vaping as an alternative source of nicotine.

    If you accept any of what I have said here then it seems to me that the relationship between tobacco executives and tobacco control researchers is also likely to be inevitably influenced by the possible persistence of combustibles within the marketplace wholly irrespective of the degree to which industry embraces ENDS products.

    • There is an important historical precident for the situation we are in now. In the late 1970’s, as follow-up to an anoucement by the American Cancer Association (based on very limited research) that smokers should switch to filter and light cigarettes to reduce risk of cancer. This messasge was then picked up by the major tobacco companies (they did not originate it), resulting in a 30-year process in which filter, light and low-tar cigarettes went from about 5% of the market to more than 95%. This advise proved false, in that these cigarettes were no less harmful than full-flavor cigarettes, but the lesson learned, is that smokers and cigarette manufacturers will respond in a powerful way to a harm reduction message. Since this message proved false, the tobacco control community blamed it on the cigarette companies. If it had proven correct, they probably would have credited the Cancer Society.

    • Clive Bates

      Thanks Neil

      I agree combustibles are very dominant in tobacco company thinking, and will be for some time – it is where the money is made after all. I tried to refer to that in 11-13. But I think the real battle front is in the new products and the extent to which these can destabilise long entrenched market shares, and the innovation race this dynamic is stimulating.

      The rise has been rapid so far by any standard, but one has to see where this is heading over 10 years or more, given innovation and half decent regulation and fiscal policies. The ratio of current ENDS users to current smokers in Britain is 25% – 2.3m vaping compared to 9.0m smoking (most recent ONS data) – that includes 908,00 ex-smokers. The ASH survey puts this higher 2.9m vapers (2017), 8.7m smokers (2015) in GB = 33%.

      But the latent potential of these products is already significantly greater than reflected in the market. This is because of the widespread misperception of a key value of these products – the reduced risk. 50% of British smokers think e-cigarettes are as harmful or more harmful than cigarettes or don’t know. Only 22% of smokers believe they are much less harmful. I think those misperceptions will eventually be overcome. [source: ASH survey]

      I do not think tobacco companies will discard combustibles any time soon, or probably ever – and nor do they need to or should they. There will be a generational effect and I would expect more in the older age groups not to disturb the habit of a lifetime and I agree there will always some people who prefer combustibles, just as there are music lovers who insist on vinyl. As long as they have viable alternative options and make an informed choice not to take them, that is their call.

      Smoking prevalence is down to 7% and daily smoking down to 5% in Sweden – a result arising mainly from alternative nicotine delivery, There is nothing inevitable about high levels of smoking. The Lancet call for an endgame scenario of 5% tobacco prevalence by 2040 – so what will the market look like by 2040, with 23 years more innovation and users who tried and were put off by poor products trying again?

      To summarise, I think consumers will call ‘the endgame’ (whatever that means) and determine its pace and depth, but companies will drive them towards it because of competition for market share and the need to have new and better products.

  • David Sweanor

    This is a great look at the dynamics in play. I think it is incumbent upon those seeking to reduce the health toll of smoking to understand the business environment that exists rather than a fictional one that they find most aligns with their preferred world view.

    Once that is done there are huge opportunities to ensure that the disruption hitting this sector will dramatically reduce the carnage from cigarette smoking. Doing things that stymie, rather than seize, that opportunity will perpetuate the epidemic, while shifting the blame about who is responsible for it.

  • Joel Nitzkin

    While I agree with your analysis, I find your description of the situation to be very incomplete with regard to the following:

    1. The “tobacco industry” is not monolithic. It is highly competitive in a very brutal way. When Altria was invited to the closed-door negotiations in Rep Waxman’s office to draft what came to be the American Tobacco Control Act, Altria used its influence to secure wording that would put it at the greatest competitive advantage against the other big-tobacco cigarette companies — thus the advertising restrictions and extreme cost of applications.

    2. The “tobacco industry is, in fact, a complex array of very different tobacco-related industries; all competitive, but, as far as I can tell, only the big-tobacco cigarette companies qualifying as “pariahs” and as “predatory.” Certainly, the suppliers and the vape-shop industries do not match these descriptions.

    3. As seen by almost everyone across this entire array of companies, there is no respect for the scientific integrity of the academic and tobacco-control communities. Many of the science and policy statements, especially as they relate to tobacco harm reduction, are easily demonstrated to be scientifically unsound. Many see the entire governmental and voluntary tobacco-control enterprise as a wholly-owned subsidiary of big-pharma.

    4. The antipathy of the vape-shop community and the general dislike of the entire set of tobacco-related industries in the USA toward the Democratic party and the Obama administration cannot be over-emphasized. Not respecting either the motives of the scientific integrity of the public health community on tobacco-control and deeming regulations, they blame the political leadership for the threat posed by the deeming regulations to put many, if not almost all of them out of business. According to their calculations, the numbers of pissed-off vapers in the swing states was enough to give the presidential election to Trump.

    5. Given the scenario noted (#4) above, and the strong anti-regulation stance of the Trump administration and Republican Congress, it seems almost certain that the Tobacco Control Act will be substantially weakened, if not overturned by the new administration. What we need, from a public health perspective, as I (JLN) see it, is significant amendment but not elimination.

    6. Through the efforts of Scott Balin and the University of Virginia, the tobacco industries have tried to reach out to the public health community to initiate constructive dialogue on how best to reduce tobacco-related addiction, illness and death. The public health community has refused to accept these invitations, apparently seeing the industry(ies) as an enemy rather than a potential partner.Until and if this dynamic changes within the public health community, politics, not science will prevail, at least in the USA.

    Joel L. Nitzkin, MD, MPH, DPA
    Principal Consultant, JLN, MD Associates, LLC
    Senior Fellow for Tobacco Policy, R Street Institute

    • Clive Bates

      Joel

      On your points, some reactions:

      1. My main point is that the industry isn’t monolithic and they have different incentives and perspective – depending on where they are strong or weak in the market.

      2. True, I’m only really talking about Big Tobacco – the companies likely to take large-scale positions in reduced risk products – mostly BAT, RAI, PMI, Altria, JTI and Imperial for now. There are of course thousands of companies in the supply chain and selling niche products.

      3. I tried to convey some of the frustration that the companies feel about the poor science and policy thinking in tobacco control at several points in the blog. But if describing the science, policy and ethics of the tobacco control mainstream I would prefer to write about it from my own perspective, rather than ‘in character’ as a tobacco CEO. There is much to say and I have an unpublished blog on it.

      4. Many vape shops do have a strong counter-culture but I wasn’t really writing about them – they aren’t part of the tobacco industry under any normal definition but they are part of the competitive landscape. It’s not surprising there is hostility – but it would best to avoid hostility that is based on misunderstandings.

      5. Only Congress can overturn or weaken the TCA, but it seems quite unlikely to do that. What the Administration can do is to interpret its powers and duties under the TCA differently and create a changed regulatory regime through exploiting flexibilities. The fact that FDA is gifting the cigarette side of the business a really advantageous ‘anti-proportionate’ system is a reason for dismay – but the tobacco companies are in fact fighting it. This would be difficult to explain if the assumption was that Big Tobacco was mainly preoccupied with selling cigarettes.

      6. I agree about the dialogue. It probably needs a period of confidence building measures before people will be willing to sit down and talk in structured way.

  • Insightful analysis, Clive.

    I’m particularly drawn to #7 and #15.

    My answer is that there is no silver bullet product unless government regulators force one (they’d prefer to regulate 6-7 products versus 6,000 different products).

    And for #15 – the greatest threat to harm reduction is the government. One should hope that tobacco companies (and larger vapor/ecig companies) restrain the impulse for using regulation for short-term selfish gain and instead take a long view toward protecting future product possibilities, many that have yet to be conceived. The cat is already out of the bag. Products exist. Innovation will continue, though it may be outside the domestic U.S. market as a result of regulation. Just as most cigarettes sold in NYC are black market products sold in response to excessive taxes, most (or a significant portion) of vapor products sold will be outside legal, regulated avenues.

  • JH

    Brilliant piece Clive. I love the possibility of a coalition of the willing. Of course, that also depends on willingness from the side of tobacco control (about which your tobacco CEO has less optimism). Part of what’s needed is an acceptance by the regulators of the idea that human beings are historically a drug using species. In other words, if the past is anything to go by, people will continue to use nicotine, in whatever form, for many more centuries to come. The choice, then, is whether we continue, albeit inadvertently, to effectively regulate e-cigarette users back to smoking; or whether we help support them in switching to a method of using nicotine that doesn’t kill them – and, yes, possibly help some to quit entirely through going down this route. But to do seems to involve accepting a principle that is governed by extra-scientific concerns: that it is ok for people to continue recreationally using nicotine if it is not seriously harming them. And if e-cigarettes are currently harmful — and the welter of evidence thus far seems to be that they are not — it will take a coalition of the willing to develop technologies that *minimise* these harms and maximise the benefits to end users.

  • Nate

    This is an outstanding piece, Clive. It should be required reading for all the vape activists who stupidly cling to lame tobacco control talking points about “Big Tobacco” as a mustache-twirling movie villain that just wants to prey on little kids and gleefully murder its customers.

    • Yes. But do know that sometimes playing along with tobacco companies are the villains is deliberately done to appeal to certain audiences. Clearly, the average vaper doesn’t get the distinction, but many working in advocacy do (and use it – and tobacco companies understand).

  • Andrew Thompson

    Well summed up in the last paragraph.

    What worries me is that harming Big Tobacco (making them ‘scream’) seems to be the only goal of some in Tobacco Control. Have TC lost their focus on the goal of reducing harm from inhaling smoke? Have they completely lost the plot?

    • Nate

      By framing the entire issue as a good-versus-evil apocalyptic struggle between noble tobacco controllers and nefarious tobacco companies, and getting governments and the public to believe it, TobCon enabled itself to grow into the hugely lucrative, hugely powerful industry it is today. Reducing smoking prevalence is not the goal, as the entire industry relies on the maintenance of a status quo in which cigarettes are the dominant recreational nicotine product.

      Tobacco companies themselves have the ability to adapt if the public decides it prefers vaping, or smokeless, or heat-not burn, or a combination of all three, to cigarettes. Tobacco control does not have the same luxury. If cigarettes fall by the wayside, their industry as they know it ceases to exist. They need smoking prevalence to be maintained at a level where 1) their revenue stream is not disrupted, and 2) they can maintain a crisis footing where there is always a “smoking epidemic” and a “Big Tobacco” devil totem that threatens to undo all of their supposed progress if their funding is not maintained at least at current levels.

      • JH

        Some really good points Nate. But we have to be careful not to replace one villain with another. I’m pretty sure there are plenty of folk in TC who equally aren’t mustache-twirling villains (nice image!) who care not whether people continue to die so long as their funding doesn’t dry up. That said, your points about Big TobaccoCon are well made: there is a kind of perverse incentive to maintain the status quo – to have a Big Tobacco wolf at the door – since livelihoods ultimately depend on their having something to ‘control’, and funding dynamics are such that creating ‘urgency’ is part of the game . But whether or not TC truly needs a ongoing crisis to sustain itself is rather more moot. Maybe a coalition of the willing could allow for a different enterprise: not cat and mouse regulation and avoidance, but genuine collaboration to generate mutually beneficial outcomes?

        • Nate

          Yes, at the rank-and-file level, there absolutely are people in tobacco control who are who are well-intentioned and think they’re helping improve public health. Their only blame, perhaps, is in not being inquisitive enough to realize what a sleazy enterprise they’re actually a part of.

        • Not exactly. For the “rank and file” in tobacco control, their continuing employment and opportunity for promotion is totally dependent on the enthusiasm with which they promote the official anti-all-things-tobacco, prohibitionist party line established in the CDC Office on Smoking and Health, then exaggerated by the pronouncements of the Campaign for Tobacco Free Kids. There is nothing in the structure of the federally funded state and local tobacco control programs or the state and local offices of the major voluntary organizations that give them any say in what this policy should be — or even any ability to question the policy. There is even a federally funded information service at Emory University that provides a data base of the literature the CDC Office of Smoking and Health has approved for this purpose. When last I checked, a few years ago, I could not find a single paper or publication favorable to tobacco harm reduction or e-cigarettes.

    • Andrew: This is the biggest problem with TC today. That is *exactly* what their focus has morphed into, it is no longer about health, merely bashing industry. They have also completely abandoned consumers too, be it smokers or vapers. They simply don’t care and have long since lost focus on the idea of their goal being about improvement of health.

      They have replaced encouragement with coercion, empathy with bullying, and harm reduction with destroying popular companies. But the very worst thing tobacco control has done is to promote worst practice to others in ‘public health’ and pervert debate in other policy areas too, often by getting stuck in themselves.

      I agree with JH that there might be some decent people in TC, but there will never be genuine collaboration because most of their raison d’etre is built on sand and they know it. There is no way collaboration can happen without honest debate, and ‘public health’ has eschewed it entirely.

      • Nate

        It’s a common thread that runs through all forms of “public such-and-such” activism: the idea that big corporations (be they tobacco companies, soda companies, fast food companies, land developers, et cetera ad infinitum) are inherently evil and care not at all about harming people if it helps bolster their bottom line.

        Ultimately, it’s a worldview in which hostility to capitalism and free markets is played as a moral virtue. The state, and its activist proxies, are necessary intermediaries whose solemn duty is to save the unwashed masses from their own (presumed) stupidity and from the (presumed) nefarious machinations of Big Bad Industry.

        It’s also a worldview that doesn’t allow for individuals having agency over their own consumer choices. People do not buy and use products because they like or enjoy them. Rather, they are seduced and victimized by things like “slick marketing” and “glitzy advertising” until demonic possession takes hold.

        • Clive Bates

          I agree so completely with this, it almost feels as though I wrote it myself! very well put…

    • Bill Godshall

      While the goal of real public health advocates has always been to reduce cigarette smoking, the vastly different goal of tobacco controllers (especially those funded by Big Pharma) has been to demonize, ban and/or heavily tax low risk smokefree tobacco/nicotine alternatives.

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